Question 1

Suppose in year 1 the CPI is 90, in year 2 the CPI is 100, and in year 3 the CPI is 110.Then, inflation is

Accepted Answer

A)  100 percent in year 1. 
B)  11 percent between years 1 and 2. 
C)  11 percent between years 2 and 3. 
D)  10 percent between years 2 and 3. 
E)  Both answers B and D are correct. 
A)  100 percent in year 1. 
B)  11 percent between years 1 and 2. 
C)  11 percent between years 2 and 3. 
D)  10 percent between years 2 and 3. 
E)  Both answers B and D are correct. B

Question 2

February 2010, the price of gasoline in the Florida was $2.629 per gallon and the CPI was 202.4 with a base period of 1982 to 1984.What was the real price of gasoline per gallon in base period dollars?

Accepted Answer

A)  $2.629 per gallon. 
B)  $1.00 per gallon. 
C)  $1.29 per gallon. 
D)  $5.32 per gallon. 
E)  $1.809 per gallon. 
A)  $2.629 per gallon. 
B)  $1.00 per gallon. 
C)  $1.29 per gallon. 
D)  $5.32 per gallon. 
E)  $1.809 per gallon. C

Question 3

If we look at real and nominal interest rates in the United States since 1968, we see that

Accepted Answer

A)  the nominal interest rate has always been less than the real interest rate because of inflation. 
B)  the real interest rate has almost always been less than the nominal interest rate because of inflation. 
C)  at times the nominal interest rate has been greater than the real interest rate and at times has been less than it. 
D)  the difference between the nominal and real interest rates has widened during the 1990s because of inflation. 
E)  both the nominal and real interest rates were negative in the highly inflationary 1970s. 
A)  the nominal interest rate has always been less than the real interest rate because of inflation. 
B)  the real interest rate has almost always been less than the nominal interest rate because of inflation. 
C)  at times the nominal interest rate has been greater than the real interest rate and at times has been less than it. 
D)  the difference between the nominal and real interest rates has widened during the 1990s because of inflation. 
E)  both the nominal and real interest rates were negative in the highly inflationary 1970s. B

Question 4

"The new goods bias puts a downward bias into the CPI and its measure of the inflation rate." Is the previous sentence correct or not?
 Explain your answer.

Accepted Answer

The sentence is false because the new go

Question 5

When the CPI rises ________, the inflation rate is ________.

Accepted Answer

A)  steadily; zero 
B)  rapidly; high 
C)  slowly; high 
D)  rapidly; low 
E)  rapidly; either high, low, or zero depending on whether production of output is increasing, decreasing, or not changing. 
A)  steadily; zero 
B)  rapidly; high 
C)  slowly; high 
D)  rapidly; low 
E)  rapidly; either high, low, or zero depending on whether production of output is increasing, decreasing, or not changing.

Question 6

Last year the CPI was 177.1 and this year the CPI was 180.9.What is the inflation rate between these two years?

Accepted Answer

The inflation rate e

Question 7

A country reports the total expenditures on the fixed CPI basket for the past three years.The cost of the CPI basket in 2008 was $23,000, the cost of the CPI basket for the base period, 2009, was $23,805, and the cost of the CPI basket in 2010 was $24,500.The CPI for 2008 is

Accepted Answer

A)  96.6. 
B)  100.0. 
C)  103.5. 
D)  106.5. 
E)  23.0. 
A)  96.6. 
B)  100.0. 
C)  103.5. 
D)  106.5. 
E)  23.0.

Question 8

To compare the price of a loaf of bread produced in 1993 with the price of a loaf produced in this year, you should compare the value of the bread in

Accepted Answer

A)  real prices. 
B)  nominal prices. 
C)  real quantity. 
D)  nominal quantity. 
E)  CPI quantity. 
A)  real prices. 
B)  nominal prices. 
C)  real quantity. 
D)  nominal quantity. 
E)  CPI quantity.

Question 9

If we look back at inflation data since 1305, we see that

Accepted Answer

A)  during the 20th century we have finally solved the problem of high inflation. 
B)  the Industrial Revolution caused the highest inflation rates. 
C)  the discovery of America caused prices to fall drastically. 
D)  inflation has been highest in the 20th and 21st centuries. 
E)  the most rapid inflation occurred prior to 1600. 
A)  during the 20th century we have finally solved the problem of high inflation. 
B)  the Industrial Revolution caused the highest inflation rates. 
C)  the discovery of America caused prices to fall drastically. 
D)  inflation has been highest in the 20th and 21st centuries. 
E)  the most rapid inflation occurred prior to 1600.

Question 10

If the real interest rate is 5 percent when the inflation rate is 4 percent, the nominal interest rate is

Accepted Answer

A)  1 percent. 
B)  9 percent. 
C)  20 percent. 
D)  .80 percent. 
E)  1.25 percent. 
A)  1 percent. 
B)  9 percent. 
C)  20 percent. 
D)  .80 percent. 
E)  1.25 percent.

Question 11

The change in the quantity of goods and services that an hour's work can buy is measured by the

Accepted Answer

A)  nominal wage. 
B)  real wage. 
C)  CPI. 
D)  real interest rate. 
E)  inflation rate. 
A)  nominal wage. 
B)  real wage. 
C)  CPI. 
D)  real interest rate. 
E)  inflation rate.

Question 12

$$\begin{array} { l c c c c } 
{ \text { Item } } & \begin{array} { c } 
\text { Quantity } \
( 2009 )
\end{array} & \begin{array} { c } 
\text { Price } \
( 2009 )
\end{array} & \begin{array} { c } 
\text { Quantity } \
( 2010 )
\end{array} & \begin{array} { c } 
\text { Price } \
\mathbf { ( 2 0 1 0 ) }
\end{array} \
\hline \text { Pens } & 400 & \$ 1.00 & 400 & \$ 1.02 \
\text { CDs } & 200 & \$ 15.00 & 200 & \$ 15.90 \
\hline
\end{array}$$
-Consumers in a country buy only two goods, pens and CDs.The prices and quantities purchased by urban households are in the table above.If 2009 is the reference base year, the cost of the CPI market basket in the base year is

Accepted Answer

A)  $3,400. 
B)  $3,408. 
C)  $3,580. 
D)  $3,508. 
E)  $3,500. 
A)  $3,400. 
B)  $3,408. 
C)  $3,580. 
D)  $3,508. 
E)  $3,500.

Question 13

To convert the nominal interest rate to the real interest rate, we

Accepted Answer

A)  divide the nominal interest rate by the inflation rate. 
B)  multiply the nominal interest rate by the inflation rate. 
C)  subtract the inflation rate from the nominal interest rate. 
D)  add the inflation rate to the nominal interest rate. 
E)  subtract the nominal interest rate from the inflation rate and then multiply by 100. 
A)  divide the nominal interest rate by the inflation rate. 
B)  multiply the nominal interest rate by the inflation rate. 
C)  subtract the inflation rate from the nominal interest rate. 
D)  add the inflation rate to the nominal interest rate. 
E)  subtract the nominal interest rate from the inflation rate and then multiply by 100.

Question 14

Suppose the Bureau of Labor Statistics uses Ballpark Franks as the hot dogs used when calculating the consumer price index.During 2010, Oscar Mayer aggressively reduces prices.Consumers respond by purchasing more Oscar Mayer and less Ballpark Franks.The 2010 CPI is likely to

Accepted Answer

A)  overstate the average prices paid by consumers. 
B)  overstate the average prices paid by businesses. 
C)  understate the average prices paid by consumers. 
D)  understate the average prices paid by businesses. 
E)  neither understate nor overstate the average prices because some consumers will still buy Ballpark Franks. 
A)  overstate the average prices paid by consumers. 
B)  overstate the average prices paid by businesses. 
C)  understate the average prices paid by consumers. 
D)  understate the average prices paid by businesses. 
E)  neither understate nor overstate the average prices because some consumers will still buy Ballpark Franks.

Question 15

Suppose higher prices lead consumers to switch from shopping at Abercrombie & Fitch to shopping at Wal-Mart.If the CPI does not reflect this change, it is referred to as

Accepted Answer

A)  a new goods bias. 
B)  a quality change bias. 
C)  an outlet substitution bias. 
D)  a new price bias. 
E)  store bias. 
A)  a new goods bias. 
B)  a quality change bias. 
C)  an outlet substitution bias. 
D)  a new price bias. 
E)  store bias.

Question 16

The nominal wage rate is the

Accepted Answer

A)  minimum hourly wage that a company can legally pay a worker. 
B)  average hourly wage rate measured in the dollars of a given reference base year. 
C)  minimum hourly wage rate measured in the dollars of a given reference base year. 
D)  average hourly wage rate measured in current dollars. 
E)  wage rate after inflation has been adjusted out of it. 
A)  minimum hourly wage that a company can legally pay a worker. 
B)  average hourly wage rate measured in the dollars of a given reference base year. 
C)  minimum hourly wage rate measured in the dollars of a given reference base year. 
D)  average hourly wage rate measured in current dollars. 
E)  wage rate after inflation has been adjusted out of it.

Question 17

The difference between nominal and real is

Accepted Answer

A)  nominal is measured in current dollars and real is measured in dollars of a given year. 
B)  real is measured in current dollars and nominal is measured in dollars of a given year. 
C)  nominal is a number stated in dollars and real is stated with an index number. 
D)  real is a number stated in dollars and nominal is stated with an index number. 
E)  both nominal and real are measured with index numbers, only the nominal index is greater than 100 and the real index is less than 100. 
A)  nominal is measured in current dollars and real is measured in dollars of a given year. 
B)  real is measured in current dollars and nominal is measured in dollars of a given year. 
C)  nominal is a number stated in dollars and real is stated with an index number. 
D)  real is a number stated in dollars and nominal is stated with an index number. 
E)  both nominal and real are measured with index numbers, only the nominal index is greater than 100 and the real index is less than 100.

Question 18

Which of the following is NOT a source of bias in the CPI?
i. quality change bias
ii. new goods bias
iii. quantity change bias

Accepted Answer

A)  i only 
B)  ii only 
C)  iii only 
D)  i and ii 
E)  ii and iii 
A)  i only 
B)  ii only 
C)  iii only 
D)  i and ii 
E)  ii and iii

Question 19

The real interest rate is negative if the inflation rate

Accepted Answer

A)  exceeds the nominal interest rate. 
B)  exceeds the real interest rate. 
C)  is equal to the nominal interest rate. 
D)  is less than the nominal interest rate. 
E)  equals zero. 
A)  exceeds the nominal interest rate. 
B)  exceeds the real interest rate. 
C)  is equal to the nominal interest rate. 
D)  is less than the nominal interest rate. 
E)  equals zero.

Question 20

Nominal GDP is $12.1 trillion and real GDP is $11.0 trillion.The GDP price index is

Accepted Answer

A)  90.1. 
B)  121. 
C)  1.10. 
D)  91.0. 
E)  110. 
A)  90.1. 
B)  121. 
C)  1.10. 
D)  91.0. 
E)  110.

Suppose in year 1 the CPI is 90, in year 2 the CPI is 100, and in year 3 the CPI is 110.Then, inflation is

February 2010, the price of gasoline in the Florida was $2.629 per gallon and the CPI was 202.4 with a base period of 1982 to 1984.What was the real price of gasoline per gallon in base period dollars?

If we look at real and nominal interest rates in the United States since 1968, we see that

"The new goods bias puts a downward bias into the CPI and its measure of the inflation rate." Is the previous sentence correct or not? Explain your answer.

When the CPI rises , the inflation rate is .

Last year the CPI was 177.1 and this year the CPI was 180.9.What is the inflation rate between these two years?

A country reports the total expenditures on the fixed CPI basket for the past three years.The cost of the CPI basket in 2008 was $23,000, the cost of the CPI basket for the base period, 2009, was $23,805, and the cost of the CPI basket in 2010 was $24,500.The CPI for 2008 is

To compare the price of a loaf of bread produced in 1993 with the price of a loaf produced in this year, you should compare the value of the bread in

If we look back at inflation data since 1305, we see that

If the real interest rate is 5 percent when the inflation rate is 4 percent, the nominal interest rate is

The change in the quantity of goods and services that an hour's work can buy is measured by the

To convert the nominal interest rate to the real interest rate, we

Suppose the Bureau of Labor Statistics uses Ballpark Franks as the hot dogs used when calculating the consumer price index.During 2010, Oscar Mayer aggressively reduces prices.Consumers respond by purchasing more Oscar Mayer and less Ballpark Franks.The 2010 CPI is likely to

Suppose higher prices lead consumers to switch from shopping at Abercrombie & Fitch to shopping at Wal-Mart.If the CPI does not reflect this change, it is referred to as

The nominal wage rate is the

The difference between nominal and real is

Which of the following is NOT a source of bias in the CPI? i. quality change bias ii. new goods bias iii. quantity change bias

The real interest rate is negative if the inflation rate

Nominal GDP is $12.1 trillion and real GDP is $11.0 trillion.The GDP price index is

Getting Started

The Usand Global Economies

The Economic Problem

Demand and Supply

Gdp: a Measure of Total Production and Income

Jobs and Unemployment

Potential Gdp and the Natural Unemployment Rate

Economic Growth

Finance, Saving, and Investment

The Monetary System

Money, Interest, and Inflation

Aggregate Supply and Aggregate Demand

Aggregate Expenditure Multiplier

The Short-Run Policy Tradeoff

Fiscal Policy

Monetary Policy

International Trade Policy

International Finance

Filters

Exam 7: The Cpi and the Cost of Living

Suppose in year 1 the CPI is 90, in year 2 the CPI is 100, and in year 3 the CPI is 110.Then, inflation is

February 2010, the price of gasoline in the Florida was $2.629 per gallon and the CPI was 202.4 with a base period of 1982 to 1984.What was the real price of gasoline per gallon in base period dollars?

If we look at real and nominal interest rates in the United States since 1968, we see that

"The new goods bias puts a downward bias into the CPI and its measure of the inflation rate." Is the previous sentence correct or not? Explain your answer.

When the CPI rises ________, the inflation rate is ________.

Last year the CPI was 177.1 and this year the CPI was 180.9.What is the inflation rate between these two years?

A country reports the total expenditures on the fixed CPI basket for the past three years.The cost of the CPI basket in 2008 was $23,000, the cost of the CPI basket for the base period, 2009, was $23,805, and the cost of the CPI basket in 2010 was $24,500.The CPI for 2008 is

To compare the price of a loaf of bread produced in 1993 with the price of a loaf produced in this year, you should compare the value of the bread in

If we look back at inflation data since 1305, we see that

If the real interest rate is 5 percent when the inflation rate is 4 percent, the nominal interest rate is

The change in the quantity of goods and services that an hour's work can buy is measured by the

To convert the nominal interest rate to the real interest rate, we

Suppose the Bureau of Labor Statistics uses Ballpark Franks as the hot dogs used when calculating the consumer price index.During 2010, Oscar Mayer aggressively reduces prices.Consumers respond by purchasing more Oscar Mayer and less Ballpark Franks.The 2010 CPI is likely to

Suppose higher prices lead consumers to switch from shopping at Abercrombie & Fitch to shopping at Wal-Mart.If the CPI does not reflect this change, it is referred to as

The nominal wage rate is the

The difference between nominal and real is

Which of the following is NOT a source of bias in the CPI? i. quality change bias ii. new goods bias iii. quantity change bias

The real interest rate is negative if the inflation rate

Nominal GDP is $12.1 trillion and real GDP is $11.0 trillion.The GDP price index is

Getting Started

The Usand Global Economies

The Economic Problem

Demand and Supply

Gdp: a Measure of Total Production and Income

Jobs and Unemployment

Potential Gdp and the Natural Unemployment Rate

Economic Growth

Finance, Saving, and Investment

The Monetary System

Money, Interest, and Inflation

Aggregate Supply and Aggregate Demand

Aggregate Expenditure Multiplier

The Short-Run Policy Tradeoff

Fiscal Policy

Monetary Policy

International Trade Policy

International Finance

Filters

When the CPI rises , the inflation rate is .